Kenya’s public debt expanded by KSh 1.37 trillion in 2025, pushing the total stock to KSh 12.30 trillion by year end. The debt-to-GDP ratio climbed to 67.5 percent, according to fresh data from the National Treasury.
The government leaned decisively on the domestic market to fund its needs. Following hefty external repayments in late 2024, authorities curbed foreign exposure and instead turned to local institutions to absorb the bulk of new borrowing.
Domestic debt rose by KSh 969 billion to KSh 6.84 trillion, accounting for roughly 70 percent of the year’s total increase. Its share of overall public debt climbed to 55.6 percent, up from 53.7 percent a year earlier. External debt grew more modestly, rising by KSh 405 billion to KSh 5.46 trillion and reducing its share to 44.4 percent.
Servicing Pressures Intensify
As the debt stock expanded, servicing obligations mounted.
By December 2025, cumulative external debt service had reached KSh 376.4 billion, equivalent to 52.6 percent of the FY 2025/26 annual target of KSh 716.5 billion. Commercial creditors accounted for 59.0 percent of these payments, followed by bilateral lenders at 24.9 percent and multilateral institutions at 16.1 percent.
Domestic interest payments remained substantial. By mid-year, cumulative domestic interest costs stood at KSh 414.1 billion, or 48.7 percent of the full-year allocation of KSh 851.4 billion, even though Treasury bill rates had eased from their 2024 peaks.
Net domestic borrowing had already reached KSh 555.0 billion by December, representing 87.4 percent of the annual target of KSh 634.8 billion. That leaves limited fiscal headroom for the remainder of the financial year.
FY 2025/26 Borrowing and Servicing Status
| Item | FY Target (KSh) | Used by Dec (KSh) | % of Target |
|---|---|---|---|
| Net Domestic Financing | 634.8 billion | 555.0 billion | 87.4% |
| External Debt Service | 716.5 billion | 376.4 billion | 52.6% |
| Domestic Interest Payments | 851.4 billion | 414.1 billion | 48.7% |
Who Is Carrying the Paper?
Institutional investors bore the brunt of the domestic financing drive.
Banks remained the largest holders of government securities, with KSh 2.32 trillion on their books by December 2025, about 34 percent of total domestic debt. That figure reflects a nominal decline of roughly KSh 186 billion from December 2024.
Insurance companies posted the fastest growth in exposure, more than doubling their holdings from KSh 429 billion to KSh 896 billion, an increase of KSh 467 billion.
Pension funds continued anchoring the long end of the yield curve, while households and non-financial corporates remained relatively underrepresented. The result is a tightening nexus between sovereign borrowing and the financial sector.
External Debt: Rebalancing Rather Than Expansion
External debt developments suggest deliberate restructuring rather than a wholesale return to global markets.
Multilateral lenders accounted for the bulk of new external commitments, with exposure rising by KSh 256 billion to KSh 3.03 trillion. The International Development Association added KSh 129 billion, while the African Development Bank and African Development Fund increased exposure by KSh 56.7 billion. IMF lending rose by KSh 41.7 billion.
Multilaterals now represent roughly 56 percent of total external debt. While this extends maturities and offers comparatively favourable terms, it also locks in long-term repayment obligations.
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Commercial external debt shifted unevenly. International sovereign bonds rose by KSh 280 billion to KSh 1.13 trillion. This was partly offset by a KSh 93.5 billion reduction in commercial bank loans, pointing to refinancing and valuation effects rather than aggressive fresh borrowing. Net commercial external debt increased by KSh 187.7 billion, with supplier credit edging up modestly.
Bilateral Creditors: A Mixed Picture
Bilateral flows diverged markedly by country.
Italy posted the largest increase, adding KSh 16.6 billion, followed by France at KSh 11.3 billion and Germany at KSh 7.2 billion. Belgium and Spain also expanded exposure, while Japan’s position remained broadly unchanged.
China recorded the largest reduction, trimming exposure by KSh 63.9 billion. The United States reduced its position by KSh 16.2 billion. Overall, bilateral debt fell by KSh 34.5 billion, despite increased lending from select European partners.
The broad pattern is unmistakable. Kenya is relying ever more heavily on domestic institutions while recalibrating its external creditor mix towards multilaterals. That strategy buys time and reduces near-term market volatility. It also deepens the interdependence between the state and the local financial system. When sovereign borrowing and bank balance sheets become entwined, stability depends not only on growth but on discipline, credibility and careful fiscal choreography.
